Monopolies and monopolistically competitive firms differ in that monopolies:

• A. have many competitors in the market
• B. face perfectly elastic demand curves
• C. are the sole sellers of a product with no close substitutes
• D. engage in significant product differentiation

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the characteristics of a monopoly. A monopoly is a market structure where a single firm is the sole seller of a product with no close substitutes.
2. Step 2: Recognize that monopolies face a downward-sloping demand curve because they are the only supplier, so they have some control over the price.
3. Step 3: Contrast this with monopolistically competitive firms, which have many competitors and sell differentiated products, leading to a downward-sloping but more elastic demand curve.
4. Step 4: Note that monopolies do not face perfectly elastic demand curves; perfectly elastic demand is characteristic of firms in perfectly competitive markets.
5. Step 5: Conclude that the key difference is that monopolies are the sole sellers with no close substitutes, while monopolistically competitive firms have many competitors and product differentiation.